Why electronic banking transactions can take so much time

By David Wilson

UpdatedAugust 21, 2014 — 6.11pmfirst published at 5.12pm

On paper, it seems ridiculous. You send some money via electronic banking and the transaction apparently goes into limbo – overseas payments can be especially slow, reaching intended recipients after up to five business days, which can effectively mean a week.

The lag prompts suspicion. Banks wilfully float your money at a slack pace, skimming interest and leaving you liable to overdraft fees, the theory goes, persuasive in its apparently streetwise logic. In fact, it seems, the system is suspect, only for less venal reasons.

"In this day and age where it's easier than ever to blow a whistle anonymously online, the outrage that would follow if a bank were found to be doing this would be huge. The potential cost to the brand would significantly outweigh any benefits they might receive in the form of additional interest or fee revenue," Lucas says.

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"Honestly, I would be more convinced that it was incompetence rather than deliberate misbehaviour," he says, adding that once money leaves the Australian banking network, all bets are off.

Behavioural economics expert Dr Michal Ann Strahilevitz also doubts that banks purposely muck customers around. "But the fact that some customers perceive this to be the case is good enough reason for banks to work harder to speed up the process!" Dr Strahilevitz says.

Banks would create much goodwill if they did raise their game, rather than blaming each other, which leaves customers "doubly frustrated", she adds.

Banks rely on SWIFT, which in turn counts on intermediary banks. So moving money from a bank account here to another abroad can see funds handled by up to four banks, according to Vrondas.

"This adds to delays and also adds to costs in the form of fees being deducted along the way," he says.

The co-founder of the personal finance app Pocketbook, Bosco Tan, also argues that the cause of delay is technical – the result of the need for processes to be underpinned by clearing houses that authorise end-of-day transfers between banks in bulk.

The clearing house aspect slows down the process. Internationally, the delays can compound, according to Tan.

But, he says, times are changing. He points to how the Reserve Bank of Australia is investing in a real-time banking system. The new system – scheduled to be fully implemented by the end of 2016 – will make institution-to-institution transfers real-time, Tan says, adding that many commercial entities are trying to pep up the payment process, too.

Firms such as OzForex, World First and CurrencyFair already have. "All three are better options than banks by a long shot," says the consumer site, Choice, noting that you need to open an account and prove your identity.

Another, new service Tan cites, the New Zealand-owned KlickEx, is building a boundary-busting peer-to-peer solution. Touted as a community exchange service rather than a bank, KlickEx lets you move money to family and friends in any of five currencies including the pound, the Australian and NZ dollars. Four more, the Euro, Hong Kong and US dollars and the Japanese Yen are planned.

Transactions happen in real time, free of charge – you avoid paying bank fees because you are dealing with people like yourself, KlickEx says, adding that it makes money from its premium services. Tan credits the start-up with asking why standard worldwide transfers take longer than international flights.

Good question. If your bank lags, using a modern fast-track payment service could well make sense. Up to a week of waiting in our remarkably interconnected, instantaneous world seems lame – especially because, as pundits say, banks do not dither about imposing overdraft fees.

Bankers will contest that faster payment leaves less time for checking details, increasing the risk of errors.

Yet the suspicion that authorised deposit-taking institutions wilfully profit on "float" looks set to persist because, for one thing, it is hard to disprove. For another, according to Financial Services Institute of Australasia research, clients mistrust banks.

Doubtless, as Dr Strahilevitz argues, a system swift in more than name would earn the banks friends. Roll on the day when, as with email, every electronic transaction completes in a second.